A concentrated growth-focused portfolio with significant tech exposure and low geographic diversification
Report created on Dec 23, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
QQ Invesco QQQ Trust
QQQ - US46090E1038 50.00% -
VO Vanguard S&P 500 ETF
VOO - US9229083632 50.00%
The portfolio consists of two ETFs, each making up 50% of the total allocation. This structure indicates a high concentration in U.S. equities, specifically within major indices. Compared to a diversified benchmark, this portfolio lacks variety, which might expose it to higher volatility. A more balanced portfolio typically includes a mix of asset classes like bonds and international equities to mitigate risks. Consider diversifying by adding different asset types to reduce potential volatility and enhance stability.
Growth
Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 16.52%, albeit with a significant maximum drawdown of -30.8%. This performance highlights the portfolio's potential for high returns, but also its susceptibility to market downturns. The high drawdown suggests a level of risk that might not suit all investors. To better manage risk, consider strategies like diversifying across more sectors or incorporating defensive assets that can provide stability during volatile markets.
Projection
The Monte Carlo simulation forecasts potential outcomes by analyzing historical data, projecting an annualized return of 17.75%. While 998 out of 1,000 simulations showed positive returns, this method has limitations, as it assumes past trends will continue. The 5th percentile projection suggests that even in less favorable scenarios, the portfolio could still yield positive returns. However, diversifying into other asset classes could further enhance the likelihood of achieving desired outcomes across various market conditions.
Asset classes
- Stocks 100%
With 99.88% allocated to stocks, the portfolio is heavily skewed towards equities, limiting diversification benefits. A typical balanced portfolio includes bonds, which can provide stability and income, especially during market downturns. The current allocation suggests a high risk-reward profile, which may not align with more conservative investment goals. Consider introducing fixed-income assets or alternative investments to balance risk and potentially improve long-term returns.
Sectors
- Technology 42%
- Telecommunications 13%
- Consumer Discretionary 13%
- Health Care 8%
- Financials 7%
- Consumer Staples 6%
- Industrials 5%
- Energy 2%
- Utilities 2%
- Basic Materials 2%
- Real Estate 1%
The portfolio is heavily concentrated in the technology sector, which comprises 42.04% of the total allocation. This concentration can lead to increased volatility, particularly during periods of tech market instability. While tech has been a strong performer, diversifying into other sectors like healthcare or energy could reduce risk and provide more balanced exposure. Aligning sector weights with broader market indices may enhance diversification and mitigate sector-specific risks.
Regions
- North America 99%
- Europe Developed 1%
Geographic exposure is predominantly in North America, accounting for 98.59% of the portfolio. This lack of international diversification may increase vulnerability to regional economic downturns. A more geographically balanced portfolio typically includes significant allocations to Europe, Asia, and emerging markets. Expanding geographic exposure can help capture growth opportunities in diverse markets and reduce dependence on the U.S. economy.
Risk vs. return
This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.
Click on the colored dots to explore allocations.
The portfolio could potentially benefit from optimization using the Efficient Frontier, which identifies the best risk-return ratio for a given set of assets. This optimization relies on adjusting the allocation between existing assets to achieve the most efficient balance. While the current portfolio is focused on growth, exploring different allocations might improve the overall risk-return profile. Remember, efficiency doesn't equate to diversification or other investment goals.
Dividends
- Invesco QQQ Trust 0.40%
- Vanguard S&P 500 ETF 0.90%
- Weighted yield (per year) 0.65%
The portfolio's dividend yield is relatively modest at 0.65%, reflecting its growth-oriented nature. While dividends provide a steady income stream, growth portfolios typically prioritize capital appreciation over income. Investors seeking higher income may want to consider adding dividend-focused equities or income-generating assets. Balancing growth and income can cater to both capital appreciation and cash flow needs.
Ongoing product costs
- Invesco QQQ Trust 0.20%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.12%
The portfolio's Total Expense Ratio (TER) is low at 0.12%, which is beneficial for long-term performance. Lower costs mean more of your returns stay in your pocket, compounding over time. This efficiency aligns well with best practices for cost management. Continuously monitoring and comparing costs with similar investment options can ensure that the portfolio remains cost-effective.
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